Reading lecture 9

Question 1

What explains the improvement in human performance in sports?

Answer 1

• keeping track of current performance through time
• keep track of performance and factors that affect it
• rewards (fosters motivation)

Question 2

purchasing performance

Answer 2

degree to which the purchasing function can reach its goals by using the minimum resources

Question 3

How to measure purchasing performance?

Answer 3

with efficiency and effectiveness

Question 4

Efficiency

Answer 4

resources and costs made to achieve objectives and goals

administrative lead times, order per purchases

Question 5

Effectiveness

Answer 5

results achieved through activities

e.g. material costs, quality, logistics, innovation

Question 6

results achieved

Answer 6

comparison of goals we had in mind and what we actually achieved

Question 7

dimensions that measurement and evaluation of purchasing activities are based on

Answer 7

price/cost dimension
product/quality dimension
logistics dimension
organizational dimension

Question 8

price/cost dimension

Answer 8

important to get competitive prices from suppliers

Question 9

product/quality

Answer 9

competitive prices only useful if flawless quality

Question 10

logistics dimension

Answer 10

delivery of flawless quality on time and right quantity

Question 11

organizational dimension

Answer 11

too many employees is useless because resources will outweigh results

Question 12

fallacy of most organizations

Answer 12

• focus more on efficiency than on effectiveness

- care more about budget spend than on actual results

Question 13

ROI

Answer 13

defined by turnover ratio = sales turnover/ networking capital

Question 14

net working capital

Answer 14

= total assets - interest free liabilities

Question 15

ROI margin

Answer 15

the same absolute improvement in sales turnover, as in purchase expenditure will have a much smaller effect on absolute profits and thus ROI margin

Question 16

largest cost category for companies

Answer 16

spend with supplier

Question 17

effects of under and over statement of savings

Answer 17

signals wrong reality
low yielding cost initiatives
misdirected corporate resources
rewarding wrong behavior

Question 18

research objective

Answer 18

identify major SC changes occurring in large companies

Question 19

factors preventing from accurately measuring and capturing supply savings

Answer 19

• systems don’t account for savings
• changes in market, technology, volumes
• unwillingness to recognize cumulative savings
• incomplete definition of supply saving
• inability to convert savings into profit
• reluctance to revisit past decisions

Question 20

systems don’t account for savings

Answer 20

accounting does not get involved
inappropriate rules –> inappropriate behavior
greatest value improvement at need definition and specification stage
internal cross functional cooperation –> to find match between strategic and operational
need to redesign SC, use different suppliers, substitute materials

Question 21

changes in market, technology, and volume

Answer 21

• volume changes one of the most common

Question 22

Unwillingness to recognize cumulative savings

Answer 22

ignoring multi year price reduction potential leads to under stating savings

Question 23

incomplete definition of supply savings

Answer 23

switching costs often ignored

Question 24

inability to convert savings into profit

Answer 24

savings tend to disappear

tendency to redirect savings to other uses

Question 25

reluctance to revisit past decisions

Answer 25

after finding potential savings improvement attention turns backwards

Question 26

maximizing supply savings

Answer 26

• focus on total cost of ownership
• different types of saving
• hardwire supply savings to the budget

Question 27

total cost of ownership

Answer 27

focus on corporate vs SC savings
give credit to contributors
life cycle costs and trade offs can lead to better solutions

Question 28

categorize different types of savings

Answer 28

market fluctuation savings
routine price and total cost of ownership savings
special cross functional efforts
savings from price increases

Question 29

market fluctuations savings

Answer 29

report when relevant
no special effort
context should be clear

Question 30

routine price and total cost of ownership savings

Answer 30

report quarterly
should fall in the 1-5%
expected from professionals

Question 31

special cross functional efforts

Answer 31

report when initiatives are completed

Question 32

savings from price increases

Answer 32

should be tracked and reported quarterly

Question 33

hardwire supply savings to the budget

Answer 33

debates about validity best settled by looking at budget implications
useful for executives to have a sense of the nature and size of possible gaps

Question 34

learning curves

Answer 34

applies to direct labor portion of costs

only concerns itself with changes due to labor requirements

Question 35

Theoretical best pricing (TBP)

Answer 35

• detailed cost data from suppliers
• result of combining best cost elements from different suppliers
• 2 purposes: arrive at a benchmark, identify areas where costs are out of line

Question 36

configured sourcing network

Answer 36

• analyses quotation from several suppliers
• assumes no differences between items from different suppliers
• considers annual volumes
• prices that each supplier quote are independent from each other